Creditworthiness may be linked to looks: study

Rebekah Kebede

3 Min Read

NEW YORK (Reuters) - A credit score can tell a lender a lot about a prospective borrower, but so can the borrower’s looks, a new study says.

People who are perceived to be trustworthy are more likely to have a higher credit score and pay lower interest rates on loans, and are less likely to default, according to the study by Rice University in Houston, Texas.

Even when hard facts such as credit scores are available, people rely on an assessment of trustworthiness to decide whether to make a loan.

“It turns out that if you look trustworthy, you’re more likely to get a loan,” said Jefferson Duarte, a professor of real estate finance at Rice University, one of the study’s authors.

Duarte and co-authors Stephan Siegel and Lance Young, of the University of Washington in Seattle, studied members of Prosper.com, an online lending site where people looking for loans are matched up with individual lenders.

Each Prosper.com loan applicant submitted a profile which included credit and work history, education level, income and an optional photograph of themselves for lender review.

More than 6,800 loan applications, 2,579 loans and 12,200 photographs from Prosper.com were used in the study.

Duarte hired a team of 25 people to rate the applicants’ trustworthiness on a scale of one to five using only the photographs of the borrowers. The team also judged the probability that the borrowers would repay a $100 loan.

Those judged to be trustworthy by the team were more likely to get a loan from Prosper.com lenders and tended to have a credit score about 20 points higher than those determined to be untrustworthy, the researchers found.

“Untrustworthy” borrowers were seven percent more likely to default on their loan than a perceived trustworthy borrower with the same credit score.

“There is an array of information that you can get out of the pictures,” Duarte said, adding that Prosper.com borrowers use photographs ranging from family portraits to snapshots of their pets.

“The pictures are revealing something about the behavior of these people that is not taken into account in the credit score model,” Duarte said.

To make sure that the evaluators’ prejudices did not skew the results, the researchers controlled for race, age, gender, obesity, attractiveness and education, as well as financial factors like employment status, income and homeownership.

Understanding what determines trustworthiness may be relevant to the current economic crisis and be the key in restoring trust in the markets, Duarte said.

“People don’t trust the markets right now. The people don’t trust the banks, the banks don’t trust themselves ... trustworthiness seems to be really important in every single transaction and we need to pay attention to this concept,” he said.